Little headway in Vodafone tax meet with govt

SummaryThe high-profile meeting between the top executives of British telecom major Vodafone and senior finance ministry officials on Tuesday on taxing its 2007 acquisition of Hutchison’s stake in Hutch-Essar ended with little headway with both sides sticking to their positions.

The high-profile meeting between the top executives of British telecom major Vodafone and senior finance ministry officials on Tuesday on taxing its 2007 acquisition of Hutchison’s stake in Hutch-Essar ended with little headway with both sides sticking to their positions.

Sources said while Vodafone executives presented the option of the government reducing the principal tax amount to R2,500 crore from R7,990 crore and waiving the interest and penalty components, the tax department did not agree. The ministry said it could consider waiving the penalty component but the company needs to pay up the tax and interest components.

Sources said the maximum leniency the ministry could be inclined to show was to let go of both penalty and the interest components.

In the absence consensus, more meetings may take place but no new dates have been fixed so far.

After the two-and-a-half hour meeting, company executives left the North Block, which houses the finance ministry without taking any questions from waiting mediapersons.

Earlier in the day, telecom minister Kapil Sibal assured Vodafone that the government was “always ready to collaborate and look at some of their concerns”.

The revenue department had recently sent a tax reminder to the company regarding the capital gains tax arising out of the ‘indirect’ transfer of underlying Indian assets of Hong Kong-based Hutchison Whampoa to Vodafone through a Cayman Island-incorporated entity.

The tax reminder was sent under the retrospective amendment that overturned the Supreme Court judgment, which had ruled that tax authorities had no jurisdiction to tax the Vodafone-Hutch deal. Vodafone had insisted that it was not liable to pay any tax. The department then sought a meeting with company officials on the issue.

Possible solutions include Vodafone agreeing to pay the tax component of around Rs 7,990 crore, and the department agreeing to waive the penalty and interest components. However, the company may face questions from its shareholders on why it agreed to pay tax on the deal despite an apex court ruling in its favour.

The other option is the investment-hungry government stating in the forthcoming Budget that it will be withdrawing the retrospective amendment provision – on the lines of the reported suggestion by the Shome panel – and ensuring that Vodafone does not